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Parent company accounting principles

PARENT COMPANY ACCOUNTING PRINCIPLES

The financial statements of the Parent company Tieto Corporation are prepared in accordance with Finnish Accounting Standards (FAS).

Tieto Corporation (business identity code 0101138-5) is a Finnish public limited IT service and software company organized under the laws of Finland and domiciled in Espoo: Keilalahdentie 2-4, 02101 Espoo, Finland. The company is listed on NASDAQ Helsinki and Stockholm. The Board of Directors approved the financial statements to be published 6 February 2018. According to the Limited Liability Companies Act the shareholders have at the Annual General Meeting the right to approve, disapprove or change the financial statements after the publication.

Foreign currency items

Foreign currency transactions are initially translated at the exchange rate prevailing on the transaction date. Foreign currency items at the end of the financial period are valued at the exchange rates on the balance sheet date. Foreign currency items are hedged using derivative contracts.

Exchange gains and losses on net financial liabilities are reported in the income statement under financial items, while other exchange gains or losses are included in operating profit. Gains and losses arising from revaluation of derivative contracts are, depending on their nature, reported either under financial items or operating profit.

Other operating income

Other operating income mainly includes internal service fees, rental income and gains from asset disposals.

Fixed-term deposits, principally comprising of funds held with banks and other financial institutions, and short-term and long-term loan receivables, as well as trade and other receivables, are classified as loans and receivables. In the balance sheet, they are reported according to their nature either in trade and other receivables, loan receivables or cash and cash equivalents (current assets) or in loan receivables or other non-current assets (non-current assets). Investments in money market instruments are reported as short-term deposits under cash and cash equivalents.

Available-for-sale financial assets

Investments in equity instruments, except for investments in associated companies and joint ventures, are classified as assets available-for-sale. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

Short-term borrowings and overdrafts as well as long-term loans and trade and other payables are classified as financial liabilities measured at amortized cost. Loans are included in non-current and current liabilities.

Recognition and de-recognition

The company applies the Finnish Accounting Act chapter 5 section 2a and records financial instruments initially at fair value. Transaction costs are included in the carrying value if the financial instrument is not recorded at fair value through profit or loss. Usually the fair value equals amount received or paid.

Regular way purchases and sales of financial assets are accounted for at trade date, the date on which Tieto Corporation commits to purchase or sell the asset, for all categories of financial assets, where entity hold them and which are not derivatives.

Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership.

Financial liabilities are derecognised when they are extinguished, that is when the obligation is discharged, cancelled or expired.

Subsequent measurement

Subsequent measurement of financial instruments depends on the designation of the instruments.

Financial assets and liabilities at fair value through profit or loss

Derivatives are held for trading and valued at fair value. Foreign exchange derivatives' fair values are calculated according to closing date's foreign exchange and interest rates. Interest rate swaps are valued according to the present value of their cash flows, supported by all relevant market data. Related valuation changes are reported, depending on their nature, in the income statement in the financial income and expenses, in other income from operations and other operating expenses in exchange rate gains and losses (foreign exchange forward contracts) and in other financial income and expenses (currency options). The rest of the valuation changes are shown in interest income and expenses (interest rate swaps) and in other operating expenses (power derivatives), except for when applying hedge accounting where fair value changes are reported in other comprehensive income.

In the balance sheet the fair value of financial assets from this category are reported under trade and other receivables or trade and other payables if asset or liability due in less than 12 months. In case the asset or liability is due in later than 12 months, it is reported under other non-current assets and liabilities in the balance sheet.

Loans and receivables

Loans and receivables are subsequently carried at amortized cost, using the effective interest rate method.

Available-for-sale financial assets

Available-for-sale financial assets are measured at fair value if fair value can be measured reliably. Unrealized gains and losses are recognized in shareholders’ equity. If fair value is not available, the assets are held at initial value. The available-for-sale assets are reported under other non-current assets in the balance sheet. When the investment is sold, the accumulated fair value adjustment is recognized in the income statement.

Financial liabilities measured at amortized cost

Interest expense and transaction costs are amortized in the income statement over the maturity of the loan using the effective interest method.

Appropriations

Group contributions are included in appropriations.

Valuation of fixed assets

Fixed assets are carried at cost less accumulated depreciation. Depreciation is charged according to plan based on the estimated economic lives of the individual assets and accounted for in accordance with the straight-line method.

The company applies the following economic lives:

Years

Intangible assets (software)

1–3

Goodwill from operations

3–5

Other capitalized expenditure

5–10

Buildings

25–40

Data processing equipment 1)

1–5

Other machinery and equipment

5

Other tangible assets

5

1)Purchases of personal computers are expensed immediately.

Leases of equipment are classified as operating leases.

Income taxes

The income statement includes the company’s income taxes based on taxable profit for the period according to local tax regulations as well as adjustments to prior-year taxes. The information related to deferred tax items is included in the notes.